Financial Planning: Malhar Majumder

Last Updated: Thu, Jul 05, 2012 19:14 hrs

I am 23, working for 2 years (monthly income: Rs 25,000). till now, I wasn’t left with enough money to save, as I had some commitments. Now I can. As the government allows investing up to Rs 1 lakh in the public provident fund (PPF), I am planning to put aside that much amount for this year. My father has been forcing me to do this, as he managed to build a huge corpus through this route. I need your advice.
It is an excellent idea to start saving Rs 1 lakh per annum (33 per cent of income of Rs 3 lakh). PPF is definitely a very good medium to channelise your savings as it offers you considerable tax savings and is definitely a safe return perspective. However, while following this, also keep three more things in mind: a) Create a contingency liquid fund. Keep it in a bank account so that you access it any time; b) purchase a health and accident insurance cover if you don’t have one; c) as your earnings go up over the years, try to maintain the current rate of savings.

I am a primary-school teacher in a village near Bhubaneswar. I earn Rs 9,000 per month. Till last year, I wasn’t worried much as I only had to care about my wife’s and my needs. Today, I have a 5-month son and am concerned about his future. To provide him with good education, I will have to send him to a bigger city. For that, I need a huge corpus. And, my salary at the most can move up to Rs 20,000, provided I become the principal of my school. As of now, I have Rs 60,000 in my bank account and Rs 50,000 in post office account. I can’t afford expensive insurance plans. Is there a cheaper way?
You do need an insurance cover, though a cheaper one. I don’t know your age, but assuming you are less than 30, take a 20-year term insurance cover of Rs 10 lakh. Its cost would come to roughly Rs 2,500 per year. You have to make sure that if something happens to you, this money will be kept in a bank as fixed deposit, which can be used only for your son’s education. The next step is to make sure that the money lying in the bank and post office is reinvested in long-term fixed deposits. Also, start a systematic investment plan of Rs 1,000 per month in a balanced mutual fund. Alternatively, you may open a recurring deposit in a bank account or even start a PPF. Keep on increasing this investment amount every year after taking your income growth into consideration. Monitor your investments closely.

The writer is director, Gliese Consulting

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